Good news, bad news, great news! The good news was a PPI report
which was unchanged from last month with a core rate increase of
only +0.1% Bad news was a Retail Sales report that came in at +0.7%
or 75% more than expected. Good news, the retail sector is not ready
to roll over and die just yet. Great news was the unanimous agreement
that the Fed is on hold for the August 22nd meeting. No rate changes
of any type are expected. The Dow celebrated with the expectations
that the soft landing would be less than damaging to the old economy
stocks. Great news also came in the form of a drop in the Nasdaq at
the open giving everybody a super entry point for a Labor day rally!

The Dow shocked analysts again with another +119 point gain and the
first close over 11,000 since April 25th. The old economy stocks
rallied and even without help from the Dow tech contingent of HWP
-2.25, HON -.38, MSFT -.19 and UTX -.38 it closed up to post gains
for nine of the last ten days. The close took out three previous
failed rally highs from May, June and July and set us up for an
attack on the April 26th high of 11140 only 113 points away.

Stumbling along behind the Dow like an unruly child with a temper
tantrum, the Nasdaq struggled to break out of a morning, Dell
inspired, dip but finally gain some momentum before the close.
The dip was prompted by weakness in the Dell earnings and a -$4
drop in Dell stock. Dell's slower growth sent ripples into the
PC sector as evidenced by the -2.25 drop in Hewlett-Packard.
Gateway however, seen as stealing market share from Dell, actually
gained almost $1. Contributing to the Nasdaq dip was ICGE after
reporting earnings that were less than expected. Other culprits
included merger partner PHCM at -12, ADAP -7.63 on bad earnings.

With rates in the U.S. on hold, Japan took the spotlight and
raised rates for the second time in ten years. Don't start crying
for Japanese companies since the +.25% hike makes the current
rate .25%. Yes, Japan had a zero interest rate policy for the
last eighteen months and the quarter point rise today is not
a cause for alarm. Alan, what would our growth rate be with a
.25% interest rate? Who knows but you can guess the GDP would
be double digits in a flash.

Well, there you have it. Four whole paragraphs of the relevant
market commentary for the week. August news equals no news and
this week end is no different. The only factors that we should
be concerned about now is getting out of August alive. The heat
is horrible and traders who have not yet taken their vacation
have only three weeks before Labor Day. Since temperatures in
Vegas in August are well over 110 most are likely heading to the
Beach instead. The only major events remaining are the CPI Report
next Wednesday and options expiration next Friday. Did I forget
the Democratic Convention? Yes, that too is available.

Going into next week I am bullish. I expect a September rally
and it looks like we have a really good base from which to
start. I like the volume for an August Friday. 1.3 billion for
the Nasdaq and 839 million for the NYSE. Even better was the
ratio of up volume to down volume which was BETTER than 2:1
on the NYSE. New 52 week highs were 102 compared to only 30
new lows. Advancers beat decliners better than 2:1. On the
Nasdaq they were 21:17, not exactly a stampede but I am not
complaining. The market internals are pretty good. Sure I
would like to see the Nasdaq joining the party but once it
starts the Dow will play second fiddle so let it run while
it can.

Normally traders can always point to some economic event on the
horizon that keeps the market in check. With the Fed on hold at
least until October 3rd, they are not a problem. The bonds are
pointing to a rate cut as the next move but just not soon. That
is never bad news. And if you think about it do you really think
the Fed will raise rates IN OCTOBER, in an ELECTION YEAR? There
would really have to be a smoking economic gun to cause that.
With only TWO rate hikes, of the recent six, fully factored into
the system, we still don't know what the economy is going to do.
It takes six full months for a rate hike to filter down through
the entire system and only two occurred more than six months ago.

With no more hikes tech stocks should be soaring but conventional
wisdom (don't you just love that term?) is now worried that
earnings may suffer from the economic slow down from rate hikes.
Once traders decide that in the current environment this is as
likely as the tooth fairy paying you a visit with SDLI stock
instead of pocket change, then the stampede will begin. Talking
heads on Friday were parroting the "no progress in two weeks"
song on the Nasdaq but is that a bad thing? We are building a
base and as long as we do not see a retest of the 3521 from
last week I would not complain. I may be too optimistic but I
would like to think the 3686 low from Friday could be the first
of a string of higher lows between here and Labor Day. The
Nasdaq did close back over support at 3750 again.

Just to balance the scales between my bullish outlook and the
bearish analysts I would also point out that we are still in a
technical down trend since March. The failed rally on July 17th
killed the recovery trend. The following lower high last week
just under the four major moving averages also was bearish. In
reality you could paint an equally convincing outlook for either
direction. Obviously only one direction can be correct so why
am I bullish? First I am not a technician, I am a news and event
player. Remember in July when the term summer rally was used in
almost every sentence? The technicals were all pointing up and
I am still getting emails about being too bearish but the dip
came just like we expected. My event was a historical pattern
not a short term technical chart.

My forecast going forward is based on multiple factors. Cash on
the sidelines. Over $8 billion came into mutual funds in the
week ended on Wednesday according to TrimTabs. The Fed is on
hold with the next move expected to be a rate cut. (I don't
believe it but that is another story. Let's go with the flow
on this one.) Summer is almost over. Traders will come back
with a vengeance in three weeks with no Fed cloud on the horizon.
Election years are normally bullish. Politicians will be stroking
investors with their version of a chicken in every pot. The
current analogy of prosperity may be a BMW in every garage? If
the Republicans are seen to be leading then drug stocks will
see investors coming back and that will be good for the market.
September is an earnings rally month. Not a big one but still
an end of the quarter month. Volume is good for August which I
believe is also a leading indicator for September. Productivity
is still soaring with no inflation in sight.

This is my forward looking OPINION. There are those that believe
we will retest 3000 again. Others not so far out on the fringe
gather at every century mark between here and there. My outlook
does not mean we will not go down before we go up but almost
every stock chart I looked at today had what looked like a
decent short term bottom. Still low volume may allow market
makers to try one more time to find a lower bottom from which to
build on. I would view any future dip to be a buying opportunity.
My only qualification would be to buy something with a heartbeat.
I know you want to stock up on those sexy Internet stocks that
did so well last year. Let me remind you that the market is
a very fickle discounter of future events. With 12 more months
of business history with which to value Internet business models
there are many previous high flyers that may never recover.
To prove this theory you only need to look at ETYS, ICGE, SFE,
TSCM, VUSA, MSTR, HCDC. Investors have gone from B2C to B2B and
back so many times we feel like a Duncan yo-yo. From bricks and
mortar to clicks and mortar. Gone are the $1000 price targets for
stocks like AMZN, EBAY, QCOM and dare we mention QXLC now trading
at $4.50?

The paradigm shift from "buy anything and it will go up" to
"buy companies that might go up" has changed the investor
psychology back to a value oriented perspective. So while I
am bullish, I do not believe we are immune to future dips
as the market finds its level. I feel we will have a fall
rally but it probably will not be as exciting as last year.
Because we did not have a market event that everybody can
point to and say, "that was the bottom" we are doomed to the
two steps forward, one step backward routine. Every time we
get to a new high somebody is going to sell into the rally
and take profits. This will keep us from setting any records
any time soon. Still, if you buy stocks on any dip and set
stop losses you can profit from these trends. It is going to
be a stock pickers market and the days of buying anything
with a four letter symbol and landing windfall profits are
over.

I have to give you my final dose of caution as well. It is
kind of like MSFT or INTC warning in their conference calls
that business was great but it cannot continue at the present
rate forever. We know that but they have to keep saying it so
the analysts won't be predicting 100% increases in earnings
every quarter. My warning tonight, and I know you get tired
of hearing it, is the VIX again at 21.24. The only way the VIX
will go higher is a strong dose of volatility. Volatility is
a polite word for "serious dip." This could be intraday or
multi-day but it will happen. The market NEVER goes up for long
when the VIX is this low. The Dow is not up 9 of the last 10
days and that is a trend that will eventually be capped by
serious profit taking. Secondly, in the market sentiment report
tonight Austin Passamonte said the institutions are still short
the S&P at historical levels. I see it, but I don't understand
it. What do they see that we don't? The bearish side of my
brain is saying "they are smarter than I am and have a lot more
money, they must know something I don't." The bullish side of
my brain is saying "looks like a good chance for a serious
short squeeze rally." Only time will tell who is right. Maybe
both. If we did see another retest of 3521 and it held then
you would see strong covering from all sides and we would be
off to the races. For me, I went long QQQ calls at the close
on Friday. I can be just as wrong as the next guy but I vote
with real money. Which ever direction YOU think the market is
headed just remember that picking the direction is far more
dangerous than playing the direction. Use the market analysis
above to plan your trades BUT DON'T EXECUTE THEM BLINDLY. Wait
for the market to confirm the analysis then jump on for the
ride. Would you rather buy those calls at 3750 or 3550? I know
which one I will choose if I am given the choice again.

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